Wednesday, October 8, 2008

16% of homeowners underwater

An article in the Wall Street Journal stated that an estimated 16% of homeowners have mortgages that are greater than the current value of their home. Wow! 16% of homeowners as an estimated 12 million properties according to Moody' If a home was purchased in the past 5 years 29% are estimated to be upside down with their mortgage. ( These are incredible figures. There likelihood of default rises considerable when this happens because people run out of options. Impossible to refinance, impossible to get a second on your equity, impossible to sell to pay of the mortgage. If a seller takes less for the home, they would still have to bring money to the table at closing or go through the ridiculously arduous process of a short sale. This could add to the major snowball of foreclosures and completely derail our economy. The sale of mortgage backed securities blew up when a number of loans defaulted because no one could tell how many more bad loans were on the books MBS owners. The market to buy and sell MBS disappeared and it left a major vacuum. The resultant affect is now hurting the economy while many on wall street try to claim that people who bought more than they could afford have caused the problem which is an extremely naive and simplistic view of a world wide crisis. But typical because Wall Street was at the heart of this meltdown.

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